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FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JULY 31, 2003
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number 0-9202
THE FUTURE FUND
(Exact name of registrant as specified in its charter)
State of jurisdiction or incorporation (Illinois)
IRS EMPLOYER ID NO. #36-3033727
C/0 HEINOLD ASSET MANAGEMENT INC.
ONE FINANCIAL PLACE
440 S. LASALLE ST-20 FLOOR
CHICAGO ILLINOIS 60605
PHONE NUMBER (312) 663-7500
SAME
(Former name, former address and former fiscal year, if changed)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shortened period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X
PART I. FINANCIAL INFORMATION
ITEM I. FINANCIAL STATEMENTS
THE FUTURE FUND
(An Illinois Limited Partnership)
STATEMENTS OF FINANCIAL CONDITION
7/31/2003 10/31/2002
(UNAUDITED)
ASSETS
Investments in affiliated general partnerships $5,620,906 $6,323,951
Due from affiliated broker 3,198,462 2,653,611
Other assets 7,480 -
---------- ----------
Total assets $8,826,848 $8,977,562
========== ==========
LIABILITIES & PARTNERS' EQUITY
Brokerage commissions payable to Affiliate $ 51,425 $ 52,230
Redemptions payable 198,382 11,346
Management fees payable to Trading Manager 25,485 29,486
Other 11,200 23,832
---------- ----------
Total liabilities 286,492 116,894
========== ==========
Partners' equity:
General Partner (220 units outstanding
at July 31, 2003 and October 31, 2002) 256,728 250,617
Limited Partners (7,099 and 7,558 units outstanding
at July 31, 2003 and October 31, 2002) 8,283,628 8,610,051
---------- ----------
Total partners' equity 8,540,356 8,860,668
---------- ----------
Total liabilities and partners' equity $8,826,848 $8,977,562
========== ==========
Net asset value per outstanding unit of partnership interest $ 1,166.95 $ 1,139.17
========== ==========
THE ACCOMPANYING NOTES ARE AN INTEGRAL
PART OF THE FINANCIAL STATEMENTS
2
THE FUTURE FUND
(An Illinois Limited Partnership)
STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED JULY 31, 2003 and 2002 (UNAUDITED)
2003 2002
Equity in income (loss) of affiliated general partnerships:
Net realized trading gains on closed contracts $ 346,039 $ 1,180,877
Change in net unrealized gains or losses on open contracts (104,491) 244,177
----------- -----------
241,548 1,425,054
Interest income 15,524 24,457
----------- -----------
257,072 1,449,511
Expenses:
Brokerage commissions paid to Affiliate 159,141 154,786
Management fees paid to Trading Manager 86,233 87,436
Incentive fee paid to Trading Manager 10,415 27,677
Other administrative expenses 12,000 4,200
----------- -----------
Total expenses 267,789 274,099
----------- -----------
Net income (loss) $ (10,717) $ 1,175,412
=========== ===========
Net income (loss) allocated to General Partner $ (329) $ 31,999
Net income (loss) allocated to Limited Partners $ (10,388) $ 1,143,413
Net income (loss) for a unit of partnership interest (for a unit
outstanding throughout the period) $ (1.49) $ 145.45
THE ACCOMPANYING NOTES ARE AN INTEGRAL
PART OF THE FINANCIAL STATEMENTS
3
THE FUTURE FUND
(An Illinois Limited Partnership)
STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED JULY 31, 2003 and 2002 (UNAUDITED)
2003 2002
Equity in income (loss) of affiliated general partnerships:
Net realized trading gains on closed contracts $ 1,031,378 $ 420,023
Change in net unrealized losses on open contracts (87,647) (377,815)
----------- -----------
943,731 42,208
Interest income 54,273 76,980
----------- -----------
998,004 119,188
Expenses:
Brokerage commissions paid to Affiliate 473,648 459,468
Management fees paid to Trading Manager 263,450 258,739
Incentive fee paid to Trading Manager 27,335 (64,042)
Other administrative expenses 37,000 22,494
----------- -----------
Total expenses 801,433 676,659
----------- -----------
Net income (loss) $ 196,571 $ (557,471)
=========== ===========
Net income (loss) allocated to General Partner $ 6,111 $ (13,606)
Net income (loss) allocated to Limited Partners $ 190,460 $ (543,865)
Net income (loss) for a unit of partnership interest (for a unit
outstanding throughout the period) $ 27.78 $ (61.84)
THE ACCOMPANYING NOTES ARE AN INTEGRAL
PART OF THE FINANCIAL STATEMENTS
4
THE FUTURE FUND
(An Illinois Limited Partnership)
STATEMENTS OF CHANGES IN PARTNERS' EQUITY
FOR THE NINE MONTHS ENDED JULY 31, 2003 (UNAUDITED)
Limited General
Partners Partner Total
----------- ----------- -----------
Partners' equity at October 31, 2002 $ 8,610,051 $ 250,617 $ 8,860,668
Redemption of 459 units of limited partnership
interest (516,883) - (516,883)
Net income 190,460 6,111 196,571
----------- ----------- -----------
Partners' equity at July 31, 2003 $ 8,283,628 $ 256,728 $ 8,540,356
=========== =========== ===========
THE ACCOMPANYING NOTES ARE AN INTEGRAL
PART OF THE FINANCIAL STATEMENTS
5
THE FUTURE FUND
(An Illinois Limited Partnership)
STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED JULY 31, 2003 and 2002 (UNAUDITED)
2003 2002
Cash flows from operating activities:
Net income (loss) $ 196,571 $ (557,471)
Adjustments to reconcile net income (loss) to net cash provided by operating
activities:
Change in assets and liabilities:
Due from affiliated broker (544,851) (550,246)
Investment in affiliated general partnerships 703,045 1,598,889
Other assets (7,480) 14,506
Brokerage commissions payable to Affiliate (805) (6,222)
Management fees payable to Trading Manager (4,001) (3,546)
Incentive fees payable to Trading Manager - (64,042)
Other liabilities (12,632) 3,340
----------- -----------
Net cash provided by operating activities 329,847 435,208
Cash flows from financing activities:
Redemption of limited partnership interests (329,847) (435,208)
Net change in cash - -
Cash at beginning of period - -
----------- -----------
Cash at end of period $ - $ -
=========== ===========
THE ACCOMPANYING NOTES ARE AN INTEGRAL
PART OF THE FINANCIAL STATEMENTS
6
THE FUTURE FUND
(An Illinois Limited Partnership)
NOTES TO FORM JULY 31, 2003 10-Q FINANCIAL STATEMENTS
The unaudited interim financial statements of the Future Fund (the
"Partnership") included herein have been prepared in conformity with accounting
principles generally accepted in the United States for interim financial
information and rule 10-01 of Regulation S-X. Accordingly, they do not include
all the information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management, the
unaudited interim financial statements reflect all adjustments, which are of a
normal recurring nature, necessary for the fair presentation of financial
position, results of operations, changes in partners' equity and cash flows of
the Partnership for the interim periods presented and are not necessarily
indicative of a full year's results.
In preparing the unaudited interim financial statements, management is required
to make estimates and assumptions that affect the amounts reported in the
financial statements. Actual results could differ from those estimates.
Certain prior year amounts have been reclassified to conform to current year
presentation.
The financial statements should be read in conjunction with the Partnership's
audited financial statements for the year ended October 31, 2002.
Management, including the Partnership's Chief Executive Officer and Chief
Financial Officer, has made an evaluation of the effectiveness of the design and
operation of the Partnership's disclosure controls and procedures pursuant to
Exchange Act Rule 13a-15. During the period covered by the report, there was no
change in internal control over financial reporting that has materially
affected, or is reasonable likely to materially affect, the Partnership's
internal control over financial reporting. Based upon the evaluation, the Chief
Executive Officer and Chief Financial officer have concluded, as of the end of
the period covered by this report, that the Partnership's disclosure controls
and procedures are effective to ensure that all material information required to
be filed in this report has been known to them, as appropriate to allow timely
decisions regarding required disclosure.
RECENT ACCOUNTING PRONOUNCEMENT
In January 2003, the Financial Accounting Standards Board ("FASB") issued FASB
Interpretation No. 46, Consolidation of Variable Interest Entities ("FIN 46").
FIN 46 addresses consolidation by business enterprises of variable interest
entities. At its August 13, 2003 meeting, the FASB delayed the effective date of
FIN 46 for non-registered investment companies that currently account for their
investments in accordance with the specialized accounting guidance in the AICPA
Audit and Accounting Guide, Audits of Investment Companies (the "Audit Guide").
The Partnership accounts for its investments in this manner and thus is subject
to the deferral. The FASB delayed the effective date while the AICPA finalizes
its Statement of Position ("SOP") on the clarification of the scope of the Audit
Guide and accounting by the parent companies and equity method investors for
investments in investment companies. When the AICPA issues the final SOP, the
FASB will consider modifying paragraph 4(e) of Interpretation 46 to provide an
exception for companies that apply the Audit Guide as revised by the SOP. As
General Partner of the Partnership, Heinold Asset Management, Inc. has not yet
determined if the Partnership would be required to consolidate certain
affiliated General Partnerships if FIN 46 becomes effective for the Partnership.
Each of these related party entities are described in further detail in Note 4
of the Partnership's audited financial statements for the year ended October 31,
2002. The General Partner estimates that the Partnership's maximum exposure to
loss as a result of its involvement with these affiliated General Partnerships
is limited to their carrying value as recorded in the Statement of Financial
Condition.
7
THE FUTURE FUND
(An Illinois Limited Partnership)
NOTES TO FORM 10-Q FINANCIAL STATEMENTS (CONTINUED)
INVESTMENTS IN AFFILIATED GENERAL PARTNERSHIPS
Each of the General Partnerships had total assets (no liabilities) consisting of
the following at July 31, 2003:
Due From Net Unrealized Partnership
Heinold General Affiliated Gain (Loss) on Total Ownership Partnership
Partnership Broker Open Contracts Assets Percentage Investment
- ------------------------------------------------------------------------------------------------------------
III $5,929,278 $30,816 $ 5,960,094 45.55% $2,714,633
IV 2,743,353 55,574 2,798,927 45.55% 1,274,822
XI 3,605,615 (23,692) 3,581,923 45.55% 1,631,451
---------------------------------------------------------------------------------------
Total $12,278,246 $62,698 $12,340,944 45.55% $5,620,906
=======================================================================================
Each of the General Partnerships had total assets (no liabilities) consisting of
the following at October 31, 2002:
Due From Net Unrealized Partnership
Heinold General Affiliated Gain (Loss) on Total Ownership Partnership
Partnership Broker Open Contracts Assets Percentage Investment
- ------------------------------------------------------------------------------------------------------------
III $ 5,312,318 $ 29,820 $ 5,342,138 45.86% $2,450,064
IV 2,164,778 (70,429) 2,094,349 45.86% 960,532
V 3,057,122 78,539 3,135,661 45.86% 1,438,108
XI 2,992,885 223,754 3,216,639 45.86% 1,475,247
---------------------------------------------------------------------------------------
Total $13,527,103 $261,684 $13,788,787 45.86% $6,323,951
=======================================================================================
Each of the General Partnerships had total income (no expenses) from net
realized and unrealized trading gains consisting of the following for the three
months ended July 31, 2003 and 2002:
Heinold General
Partnership 2003 2002
- ------------------------------------------------------------------------
III $200,913 $ 717,735
IV 95,454 853,444
V 218,098 688,532
XI 15,222 828,734
-------------------------------------------
Total $529,687 $3,088,445
===========================================
The Partnership was allocated $241,548 and $1,425,054 for the three months ended
July 31, 2003 and 2002, respectively.
8
THE FUTURE FUND
(An Illinois Limited Partnership)
NOTES TO FORM 10-Q FINANCIAL STATEMENTS (CONTINUED)
INVESTMENTS IN AFFILIATED GENERAL PARTNERSHIPS (CONTINUED)
Each of the General Partnerships had total income (no expenses) from net
realized and unrealized trading gains consisting of the following for the nine
months ended July 31, 2003 and 2002:
Heinold General
Partnership 2003 2002
- ------------------------------------------------------------------------
III $ 617,956 $ 54,915
IV 704,578 586,963
V 411,200 126,269
XI 365,284 (659,291)
-------------------------------------------
Total $2,099,018 $108,856
===========================================
The Partnership was allocated $943,731 and $42,208 for the nine months ended
July 31, 2003 and 2002, respectively.
Each of the General Partnerships had Partners' equity consisting of the
following for the nine months ended July 31, 2003
Partners' Partners'
Heinold General Equity at Net Equity at
Partnership October 31, 2002 Income Redemption July 31, 2003
- --------------------------------------------------------------------------------------------------------
III $ 5,342,138 $ 617,956 $ - $ 5,960,094
IV 2,094,349 704,578 - 2,798,927
V 3,135,661 411,200 (3,546,861) -
XI 3,216,639 365,284 - 3,581,923
------------------------------------------------------------------------------
Total $13,788,787 $2,099,018 $(3,546,861) $12,340,944
==============================================================================
General Partnership V ceased trading as of June 30, 2003. The General
Partnership's assets were distributed to the equity owners according to their
respective investment balances. The Partnership received $1,615,483 from the
liquidation of this partnership, which is included in Due From Affiliated Broker
on the Statement of Financial Condition.
9
THE FUTURE FUND
(An Illinois Limited Partnership)
NOTES TO FORM 10-Q FINANCIAL STATEMENTS (CONTINUED)
Management's discussion and analysis of financial condition as of July 31, 2003
and operating results for the three and nine months ended July 31, 2003 and July
31, 2002.
Note A: July 31, 2003 October 31, 2002
(Unaudited)
------------------- -------------------
Partners' equity $ 8,540,356 $8,860,668
Partners' equity at July 31, 2003 was lower as compared with Partners' equity at
October 31, 2002 due to unit redemptions exceeding net income for the period.
Net income for the period of 2.2% and total redemptions of 5.8% caused a
decrease in total partner's equity of 3.6% over the period. For the nine-month
period ending July 31, 2003, the Partnership's Net Asset Value per Unit
increased from $1,139.17 at October 31, 2002 to $1,166.95, representing a 2.4%
gain. The difference between the net income percentage and the percentage gain
in Net Asset Value per Unit is due to the timing of capital transactions.
Note B: Nine months Nine months
ended 7/31/2003 ended 7/31/2002
(Unaudited) (Unaudited)
--------------- ---------------
Net Realized and Change in Net Unrealized Trading
Gains $ 943,731 $ 42,208
Net Realized and Change in Net Unrealized Trading Gains for the nine months
ended July 31, 2003 came from first and third quarter trading gains of $760,007
and $241,548 respectively, combined with second quarter losses of $57,824,
causing a net trading gain of $943,731 for the period.
During the first quarter, gains were seen in both agricultural products and
metals, most notably long gold positions as the demand for gold increased due to
renewed interest as a safe investment in uncertain times. Long positions on
crude oil were also profitable, as the price for oil rose due to tensions in the
Middle East. As the weakening US dollar continued to decline in light of the
anticipated conflict with Iraq and potential problems with North Korea, short US
dollar positions against other major currencies such as the Euro and the Swiss
Franc created significant profits.
During the second quarter, the Partnership netted a slight loss. Volatility due
to international tensions and economic worries kept the markets from getting a
general sense of direction. As a result, the Partnership showed both gains and
losses in various commodities, finishing the period with a slight loss. Gains on
long crude oil positions due to oil prices reaching highs in February were
turned to losses in March, as prices dropped considerably. Trading in currencies
also showed both gains and losses as prolonged anxiety about the war was
reflected in narrow price changes in most major currencies. US Treasury
positions posted losses, then gains, while long Euro Bond positions posted
negative returns after sharp price falls.
During the third quarter, the Partnership showed gains. Please see Note C for a
more detailed discussion of trading during the period.
10
THE FUTURE FUND
(An Illinois Limited Partnership)
NOTES TO FORM 10-Q FINANCIAL STATEMENTS (CONTINUED)
The current results of operations proved to be an improvement over the same
period last year, when significant losses were posted in the first two quarters,
with even greater gains during the third quarter gains netting out to a slight
gain of $42,208 during the nine-month period.
Losses of $1,142,860 and $239,986 for the three months ended January 31, 2002
and April 30, 2002, respectively, were offset by gains of $1,425,054 for the
three months ended July 31, 2002, causing a small gain.
Note C: Three months Three months
ended 7/31/2003 ended 7/31/2002
(Unaudited) (Unaudited)
--------------- ---------------
Net Realized and Change in Net Unrealized Trading
Gains $ 241,548 $ 1,425,054
Net Realized and Change in Net Unrealized Trading Gains for the three months
ended July 31, 2003 came from net profitable trading during the period. The
quarter started out strong with substantial gains in May, but fell off with
losses in June and July, netting to a modest gain for the period.
May showed strong gains in the currency and interest rate sectors. The continued
downtrend of the US Dollar caused the Euro to hit four-year highs against the
Dollar, the Yen, and the British Pound. The Partnership recognized considerable
profits in short USD positions against the Euro, as well as long Euro positions
against the Yen.
In June, performance turned towards the negative, as unfavorable conditions in
other market sectors such as agricultural futures, metals, and equity indices
posted losses for the month. Long gold positions performed poorly, while the
energy and bond sectors also recorded losses.
In July, losses were posted in part due to highly volatile currency markets. The
US dollar started to rise, causing the short US Dollar positions which were
extremely profitable earlier in the period to decline. A surge in the Yen also
hurt performance in the currency sector.
The current gain was not as substantial as the results for the three months
ended July 31, 2002 when the Partnership posted significant gains after two
unprofitable months.
11
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized on the 12th day of September, 2003.
THE FUTURE FUND
By HEINOLD ASSET MANAGEMENT, INC.
General Partner
By /s/ Thomas M. Harte
-----------------------------
Thomas M. Harte
President and Chief Executive Officer
By /s/ Ira Polk
-----------------------------
Ira Polk
Chief Financial Officer
12